Owner of PATC, Gavin Bacon, recently gave a talk at the Premier Hotel in Pinetown for the annual Durban Chamber of Commerce and Industry – Western Area Business Forum. Bacon’s aim was not to give a lecture and he did not intend on making everybody in the room proficient in Provisional Tax but he rather chose to touch on the various aspects of Provisional Tax so that the audience was filled with questions and a desire to know more! He wanted to encourage people to seek further advice and consult Tax Practioners and Professionals. We have summarized the talk below for those who were unable to attend.
Mr. Gavin Bacon opened his talk by stating the importance of Provisional Tax, Bacon believes that even though it is a provisional payment and perhaps construed as an “advanced payment” it is probably more important than Income Tax.
Who is liable to pay Provisional Tax?
You need to pay PAYE if you earn a fixed salary or have regular drawings – this being applicable for;
- CC’s and Companies
Provisional Tax due dates are in August and February each year and apply to individuals;
- Who Earn more than one income
- Have a business income
- Are a sole Proprietor, Partner in a Partnership
- Have a CC or Company (CC’s and companies are treated as the same thing for Income Tax Purposes)
Some things to keep in mind:
- Late Payments acquire a 10% penalty
- Under Payment = 20% penalty
- If your taxable income is R1million or less then you have to be 90% accurate
- If your taxable income is over R1million then you are allowed to be within 80%
How to avoid penalty payments:
- Play it safe. For example if you know your depreciation on average is R100k yet you have acquired additional assets – perhaps use last year’s depreciation or actually calculate your depreciation and round it down.
- Allow for growth – if you know your business average growth is 6% – then allow for 8% to be safe.
- Don’t claim expenses which you are not entitled to and leave them off if you have any doubts at all.
‘Don’t do it yourself – get a professional. You wouldn’t try and extract your own teeth, would you? – or build a bridge for that matter?” – Gavin Bacon
What must be declared to SARS and why?
- Everything needs to be declared
- Your Gross Income will be recorded and you are then allowed to take out exempt amounts E.g. Inheritance
- The next step allows you to subtract tax deductible amounts – such as certain medical aid deductions
- Incidentally Medical tax benefits have moved away from medical expenses being deducted as a tax deduction and instead SARS has introduced a tax credit system – this means that the amount is deducted at the end, not the beginning.
What can be claimed and how?
The general laymen’s terminology applies:
- Any expenses in the production of income may be claimed. This may include you needing a cellphone to do business or you buying and paying for business cards to promote your business.
- Any expenses incurred may also be claimed e.g. you buy a desktop or laptop for your business.
- When you have your own business – you have to buy; electricity, pay a secretary, buy stationary for yourself – these extra expenses are allowed 99.9% of the time.
Why do we pay Provisional Tax?
- This is SARS way of collecting their taxes straight away – they can’t wait until you submit your tax return in June or July or even later and then only recover their taxes.
How to register with SARS?
- You can write to SARS
- You can go into one of their branches
- Or you can utilize eFiling online
IMPORTANT NOTE:
It is important to state that if you are a provisional taxpayer by definition then you are a provisional taxpayer – it is not ONLY once you register – the registration process is merely a formality – so you can be prosecuted and or penalized even if you are not registered as such.
“If you pay your Provisional Tax, Income Tax becomes a breeze!”
If you are in need of an accountant or are seeking advice on any of the above mentioned material, please do not hesitate to contact PATC (Professional Accountants and Tax Consultants) today. Your first consult is FREE!